Russia after Communism

RUSSIAN ECONOMY SINCE 1991

Russia has probably been the subject of the most drastic economic and political changes 

for the past 15 years. In fact, it was clear in the 1980's that the Union of Soviet Socialist Republics was showing signs of collapse, with a leadership losing its authority, with an economy gone bankrupt, with its industries dilapidated, and with a workforce unable to meet the basic necessities of life. And to understand the current economic status and the economic rebuilding efforts of Russia, one needs to go a few decades back and understand the reasons lying beneath the secession of one of the two superpowers of the Bipolar World.

http://www.culture-of-peace.info/soviet-collapse/introduction.html

According to David Adam, political scientist and U.S. Ambassador to Panama, simply 

everyhting was working against the USSR in their race against the United States of America, and the rest of the "Capitalist Western World". Economically, politically, and socially, the USSR edging closer towards the breaking point every passing year.

However, one development is the key in the collapse and that is the arms race 

triggered by the former-U.S. President Ronald Reagan. The effects of this arms race were also felt in the United States in the form of a gigantic budget deficit and a high rate of uemployment.

However;

1) The U.S. GDP was a lot larger than that of the Soviet Union

2) The U.S. was engaging in free trade and all the other benefits 

of Capitalism, which the Soviets could not

Much of the structure of the Soviet economy that operated until 1987 originated under the leadership of Joseph Stalin, with only incidental modifications made between 1953 and 1987. Five-year plan and annual plans were the chief mechanisms the Soviet government used to translate economic policies into programs. According to those policies, the State Planning Committee (Gosudarstvennyy planovyy komitet—Gosplan) formulated countrywide output targets for stipulated planning periods. Regional planning bodies then refined these targets for economic units such as state industrial enterprises and state farms (sovkhozy; sing., sovkhoz) and collective farms (kolkhozy; sing., kolkhoz), each of which had its own specific output plan. Central planning operated on the assumption that if each unit met or exceeded its plan, then demand and supply would balance.

The government's role was to ensure that the plans were fulfilled. Responsibility for production flowed from the top down. At the national level, some seventy government ministries and state committees, each responsible for a production sector or subsector, supervised the economic production activities of units within their areas of responsibility. Regional ministerial bodies reported to the national-level ministries and controlled economic units in their respective geographical areas.

The plans incorporated output targets for raw materials and intermediate goods as well as final goods and services. In theory, but not in practice, the central planning system ensured a balance among the sectors throughout the economy. Under central planning, the state performed the allocation functions that prices perform in a market system. In the Soviet economy, prices were an accounting mechanism only. The government established prices for all goods and services based on the role of the product in the plan and on other noneconomic criteria. This pricing system produced anomalies. For example, the price of bread, a traditional staple of the Russian diet, was below the cost of the wheat used to produce it. In some cases, farmers fed their livestock bread rather than grain because bread cost less. In another example, rental fees for apartments were set very low to achieve social equity, yet housing was in extremely short supply. Soviet industries obtained raw materials such as oil, natural gas, and coal at prices below world market levels, encouraging waste.

Moreover, attempts to reform the Soviet economy, such as perestroika, had failed; and the economy kept going downhill until December 24, 1991, when the Soviet Premier Mikhail Gorbachev resigned from his position and announced that the Soviet Union had officially ceased to exist.

===THE POST-USSR ERA AND ECONOMIC REFORMS===

After the breakup of the USSR and the formation of the CIS(Commonwealth of Independent States), Russia had two related and interdependent economic goals to accomplish under the new Yeltsin administration: MACROECONOMIC STABILIZATION and ECONOMIC RESTRUCTURING, two policies to signal the transition from a centralized system to a market-based economy.