Death of the empire. Part VII.

10 Afterword

So, in the mid-80s the USSR faced a deep crisis of the financial system, which led to the crisis of the whole economy and caused the sharp fall of the production and life quality, which led to the political destabilization and then to the crash of the political regime and the whole Soviet empire.

By the end of 90s, Russia, the heir of the USSR, formed a new open economic system, which included a set of young and imperfect, but working institutions: private property, convertible currency, banking system, regulatory system that controlled stock exchanges and natural monopolies. There was also a sufficient amount of experienced and knowledgeable managers. All this gave a chance to begin economic growth, to provide stable growth of the life quality, structural changes in the economy, to stabilize the financial situation of the country.

The structural changes went along the steps that could have been taken by the Soviet leaders in 1986-87: capital investments, military spendings and grain import were cut; export of raw materials was increased, the internal consumption of these materials was decreased. These measures caused further decrease of production and life quality, but the currency reserves, exhausted by the end of 1991, were restored and the budget deficit decreased to zero. Since late 1999-2000 the country was restoring the reputation of a first-class debtor.

If the Soviet leaders took these steps earlier, the restoration period could be shorter. But they were unable to take the crucial decision -- to replace the socialist centralized system of the economic management with the market system. Contrary, Russia and other post-socialist countries went a difficult way and formed the basic structure of the market economy.

In the same years a young and unstable democracy was formed, which included elements of populism, political irresponsibility and corruption. Nevertheless, the system of checks and balances was built. This system was flexible enough and one could hope that it might provide certain stability within the huge and multiethnical country.

In 2000-2003 effective economic reforms enhanced the quality of the tax and financial systems, made the federative system more transparent.

However, since 2003-2004 the trends of the developments in the Russian political, federative and economical systems became negative.

Till 2000-2002, Russia had a loyal, but independent parliament. The press was controlled by groups of oligarchs, but the differences of their interests gave a chance to see the situation from different points of view. The organizations of businessmen and entrepreneurs were influential and participated in the decision-making. Since 2003, all these institutions are turning into decorative elements.

The actions of the current Russian government pave a road to the system which may be called a closed (or managed) democracy, or soft authoritarianism. This system has little common features with the Soviet totalitarian system, but it begins to show weaknesses and elements of instability typical for such systems.

Abolishment of federalism (appointment of regional governors, introduction of the proportional electoral system and the 7% electoral barrier for the political parties, etc.) gives strong arguments to the nationalists and separatists.

Russian economic policy was conservative and effective in the last years. The stabilization fund was launched, the foreign debts were minimized. The Russian leaders have demonstrated the ability to learn lessons from the experience of their predecessors, which is an uncommon feature for the Russian rulers.

The government is often criticized for this fund, but this populist rhetorics is a natural element of the political landscape. However, the impression that the size of this fund is anomalous, is exaggerated. By January 1 2005, the fund was 5.7% of GNP (compare to the Norwegian 70.1% in October Since 2005, the government began to increase the budget spendings financed by the oil export. These spendings are still relatively small, but they undermine the stability of the financial system. Russian economy, like the Soviet one earlier, becomes dependent on the prices for oil.

Currently, the risk of destabilization in Russia is much lower than it was in the late USSR. The soft authoritarian system still includes a lot of elements of freedom and flexibility, which gives some hope for Russia. The share of the Russian population is much higher than it was in the USSR which decreases the chances of serious ethnic conflicts. Russian market economy is way more flexible than the socialist one. And yet, the risks and the dependency of the country on the parameters not controlled by the government remain.


Craig said...

Hi, Dmitri--

Thanks for your comment on "Cocaine [Oil] Blues." I will read your "brief" articles with interest. Your blog looks very interesting, and I have just added it to my RSS feed. Thanks again, and I look forward to reading your blog. I also look forward to any comments you might offer on SWP.


Craig AKA The Streetwise Professor

Dmitri Minaev said...

Thank you for your kind words, Craig. I have posted in your blog before. Now, I've added it to my RSS reader to be sure I won't miss any of your insightful posts. Thanks!