Russia\' Economic Transition




Russia\' Economic Transition


In August of 1991, the collapse of the communist system in the USSR and
it\'s neighboring republics occurred. Out of the smoke emerged fifteen new
republics and a union known as the Commonwealth of Independent States. These new
regimes faced formidable obstacles. The collapse brought massive inflation which
in turn forced the economy into a spiraling decline and a state of almost
worthless value. Many people were quick to point the finger at their communist
past, and even more eager to lay blame. Traditional communist ideology was to
"provide for every individual an equal amount of goods and services, thus
creating a state of equality amongst the populous" (Leveler, 16). Many people
felt as if their current hardships could be blamed on the communists and their
economic policies, specifically their "Core-Periphery" plan.

The communist sponsored "Core-Periphery" economic policy that was
evident in Russia was quite simplistic in nature. The theory, traditionally used
to describe inter-continental trading and production, was adapted for use in the
Russian economic zones. The theory was as follows; Areas which surround the
capital (core region), usually rich in one material or another, would be used
for the extraction of raw materials. These materials would then be shipped back
to the capital in order to be manufactured into goods. From there, the
manufactured products would be shipped back to the surrounding regions
(periphery region) for resale. The citizens of Russia were surviving on this
system, but barely. The Core-Periphery policy was not efficient, nor effective,
for usually a product needed on one side of the federation, was produced at the
other end. Factors such as transportation costs and adequate use of human
resources was very inefficient and cost-consuming. Strong influences from the
world urged Russia to make the transition into the market-oriented economy. This
seemed tempting, for the market-oriented economy preached individual wealth and
prosperity. Seeing no better solution to their current economic woes, Russian
policy-makers took the plunge.

By 1995, 4 years since the beginning of the transition into a market-
oriented economy, no satisfactory economic improvment had taken form.
Productivity in many states such as Turkmenistan and Belarus continued to fall
(Table 2), and inflation was still at high levels. Many new Russian capitalists
in the regions chose to exploit what had already been exploited in the past; raw
materials. Looking to make a fast income, these new Russian capitalists sold
whatever they could get their hands on, for practically no cost at all (Co-
Existence, 146). Expropriation of state property, shady deals, and corruption
were rampant. Productivity in industries such as agriculture declined as farmers
did not want to take care of their land (Co-Existence, 146). Nobody had money to
buy their goods, so they questioned as to whether or not they should take the
time to produce them. The economy was contracting and in turn, people were
actually getting poorer.

The newly separated states were yearning for economic growth and
prosperity. This would hopefully bring stability and a much needed improvement
in the standard of living as well as individual wealth. This however, has not
been the case. Many of the breakaway republics have actually experienced
considerable negative growth. Many of the republics made the transition to the
market economy hoping to make the individual citizen wealthier. In many of the
republics this did not actually take place. In 1995, all but 2 of the 15
countries saw their net exports per capita fall drastically. Lithuania, once
with a net export per capita rating of 49.2, was experiencing one of -54.1 in
1995 (Table 1). On average the citizens now had less than before.

Many countries began to realize that they were in many ways still
dependent on so-called "mother Russia". The past Core-Periphery policy had made
them heavily rely on internal domestic trade. Being nothing more than satellite
states in the centrally planned economy, these countries were traditionally used
for the extraction of materials or the production of a singular industry. Their
economies were not diversified. Traditionally supplies had to be brought in, and
this was still the case. Import statistics in the newly independent republics
have seen a drastic rise in totals. In 1992, the Ukraine with a population of
approximately 51 million people imported a total of 2.2 billion million dollars
worth of goods (Table 1). In 1995 however, the Ukraine with a population less
than what it had been in 1992, actually imported more; 5.6 billion dollars
worth of goods (Table 1). This rise in imports was also evident in Georgia,
Lithuania, and Uzbekistan (Table 1). For these countries, importing more than
they are actually exporting is proving