Russia Former Soviet Union

Leninism World War I –Defeat in Russo-Japanese War of 1904 –Defeat in WWI of Russian Revolution –A series of riot in March 1917 –October 1917 Bolshevik revolution  overthrow of Czar Forming a Party State New Economic policy –Nationalization of major industries, but –Small businesses and agriculture are left private

Stalinism Stalin in power in 1928 Starting 5 year plans : –Top priority on industrialization  modernization  military power Collectivization of agriculture Purges of opponents and creation of nomenklatura (party elite group)

Post Stalin Period Khrushchev ( ) –More decentralized responsibilities Brezhnev ( ) –Brezhnev doctrine: Eastern Europe under the Soviet –Continuous improvement in living standards Two successors from Gorbachev ( ) The 1980s are characterized as decline in Soviet power and economic well-being.

Perestroika and Glasnost Economic policy of Gorbachev Perestroika: restructuring First perestroika, and second perestroika, Modernizing industry by quality control, incentives, and decentralization Failed because of too many reforms uncoordinated. Glasnost: Openness To create an open and transparent society More bad sides than good sides were revealed Caused independence of eastern European states.

Soviet Economy in the 1980s Slow or no economic growth Lack of export competitiveness Lagging behind in key technologies (computer, electronics, genetics) Heavy burden of defense budget (20% of GDP compared to 6% in the U.S.A. Poor infrastructures Environmental pollution (e.g. Chernobyl disaster)

Russia After Collapse of the Soviet Union

Transformation to Market Economy Shock therapy vs. gradualism Political change –New constitution (drafted in 1989 under Gorbachev and ratified in Dec. 1993) –From one party (Communist party) to Multi-parties democracy Legal provisions –Contract law, property law, competition law, intellectual property law, bankruptcy law, etc.

Transformation to Market Economy Continued Privatization –Steps Macroeconomic adjustment, provision of legal framework, and valuation of assets –Methods Voucher method, public auction, giving away or selling to workers and managers, and selling to foreigners –Privatization of industry 1 st stage: small enterprises to workers and managers 2 nd stage: large enterprises by a voucher system 3 rd stage: case by case sales of large enterprises to foreigners

Transformation to Market Economy Continued –Privatization of agriculture State farms: sold at auction Collective farms: converted into partnerships Private plots: no change –Less than 3% of total land, but contributing to 1/3 of meat and milk and 2/3 of eggs and potatoes production. Very slow privatization: 90% of farms were still under collective farms in 1998.

Banking Reform Previously –Gosbank (state bank): functions of both the central bank and commercial banks –Special purpose bank: Sberbank(savings bank) Presently two-tiered banking –Central Bank of Russia –Commercial banks (about 2,000) Convertibility of currency (ruble) introduced in 1992

Fiscal Reform Federal –Three major taxes VAT, profit taxes, and excise taxes –Two major spending Debt service, defense Regional –Three major taxes Profit taxes, personal income taxes, VAT –Three major spending Housing and municipal service, education, and health

Evaluation of the Russian Economy Negative economic growth in the 1990s Politically and economically unstable  reduction of foreign capital inflow Increase in poverty Default on foreign debts in 1998 Increase in crime and corruption Increase in income and wealth inequality