The Russian economic history is one of many cases, that an economy, undertook two economic transformations within a century, both of which occurred during a period of uncertainty and brought extreme change towards the structure of the economy and the people operate within it.
Firstly, before the Russian economy was transformed into socialist planned model, the Russian economy was a resource based economy with strong emphasis on the mining agrarian sector of the economy. Compared to its western European peers, most farms until 1914, are owned and managed in communes, which is considered backwards (Kahan). This was direct result of the Russian state abolishing its serfdom practices, but in order to ensure stability in the production rates of its produce, has granted the worked lands to communal ownerships, as opposed to private individual ownership, for the communes was generally believed to help unify and standardize the agricultural practices and efficiently utilize its pooled resources (Kahan). The agrarian sector however, struggled with unproductive peasantry that is demotivated by the loss of freedom and mobility due to the communal practices and, the decisions that adversely affect their situation. The sector of the economy till 1917, used to resemble the pre enclosure period of Western European agriculture (Kahan). One policy that consistently stood out, throughout the Imperial period was that Agriculture was used to not only maintain the political strength of the nation, but will also burden of subsidizing and modernizing the Russian economy, for it remains the Nation's top employer and significant amounts of tax revenue has been derived from it (Kahan).
The industrial sector of the economy, despite being relatively under developed, when compared to its Western European counterparts was still one of the main focal points of the imperial government's efforts to modernize the economy. The industrial revolution that place during the 1840s to 1880s, was one of slower industrial revolutions in the world, due to number of factors that that affected its implementation (Kahan). Namely, due to a lack of emancipated workers, domestic capital, and entrepreneurial and managerial skills. This was further hampered by the public and government's disinterest to towards to the overall development of the manufacturing base, for government towards any industrial project is often tied to secondary objectives, such as manufacturing products oriented towards either military application or exports (Kahan).
However, it should be noted that there was an industrial boom that took place during the early 1900s, mainly due to a surge in demand for manufactured goods, weapons and consumer goods. This was also stimulated by the increased foreign investment, mainly by France, in order to not only garner better relations with the Russian empire, but to use the Russian empire as a Bulwark against the Austro-Hungarian empire and Ottoman Empire.
However, Imperial Russia, was soon replaced by the USSR, through a series of revolutions, that have devastated both the population and its economy. The reasons for the empire's violent demise, was the unequal distribution of wealth, poor working conditions in many farms and workplaces, shortages of essential goods due to ww1 and government mismanagement of the economy. Also due to the excessive loss of manpower caused by the conscription of policies, in order to replace the high causalities the nation has suffered during ww1, which has caused a labour shortage to occur in Russia's industrial and Agricultural Sector (Kahan).
The Soviet era, brought an end to the capitalistic system that the previous government has operated with, and replaced it with a socialist planned economy, where the defining feature is that the state controls all factors of production and in practice controls both the demand and supply of the Nation.
It should be noted however, that under Lenin's some activities with in the economy are permitted to have private activity, for the New Economic Policy program of 1921, allowed private ownership in agriculture, light cottage scale industry, and certain local services. However in fields such as heavy scale industry, long range transportation, foreign trade, and financial services such as banking remained in state control remained under state control. This was done to spur industrial growth and to increase the manufacturing and agricultural output to its pre war levels (Curtis).
However, with the death of Lenin, in 1924, the government had abandoned the NEP, as Stalin, Lenin's right hand man, sought to transform the agrarian based nation, into an manufacturing powerhouse and thus, initiated the country\'s First Five-Year Plan of 1928-32. To shore up the agricultural sector, the government began a policy of collectivization of various farms into a collective estates, which are owned and managed by the state, The output of agricultural produce has decreased by 23%, and other more tragic side effects can be seen in many of famines that plague this nation during this period, like the Holodomor famine of 1933, in which millions of ethnic Ukrainians starved to death (Curtis).
The heavy industrial sector has grown tremendously, as especially during of ww2, where the government diverted all its resources into this sector, in order to mass produce much needed military equipment for the war efforts. However, other sectors such as the Textile, consumer products and chemicals saw their outputs decline for lack resources and effort by the government saw these sectors, especially the consumer goods industry falter during this time period.
With the end of war, the household consumption rates of goods, had finally reached over 1928 level of household consumption (Curtis, 1996). Eventhough, Stalin died in 1953, his government's emphasis on heavy industry and central command and control over all aspects of economic decision making remained virtually intact well into the 1980s (Curtis, 1996).
During late 1980s the soviet economy was in a period of decline, for it is ineffectual management of production and excessive bureaucracy saw the government being unable to keep pace with consumer demand of the country. The citizens saw their living standards decrease, and thus started to question the effectiveness of such economic
The then Premier Gorbachev started to implement radical changes to economy in order to not only to return the economy to a period of high growth, but to also increase the average productivity of its workers. One of these changes was the shifting of investment priorities toward the machine-building and metalworking sectors of economy, so that could retool and modernize existing factories of economy, rather than building new factories, which also reflecting in the changing the investment focus from that of extensive infrastructure building towards intensive infrastructure support (Curtis, 1996).
Gorbachev also undertook a policy of restructuring the government bureaucracy, through the policy known as “perestroika” which literally means restructuring. The law stipulates that the state firms were free to determine the output levels based on their perceptions about the demand from consumers and other enterprises (Curtis, 1996). Enterprises had to still fulfill state orders, but they could operate and use the remaining resources as they saw fit. The Enterprises are buy the factor inputs from suppliers at negotiated prices. Under the law, enterprises have become self-financed; meaning, they had to cover own expenses through the revenue they earn, for the government will not rescue firms that are unprofitable in nature (Curtis, 1996). This can be seen as an extension of Lenin's earlier NEP program for it allowed the private enterprises to compete with one another, and thus in theory remove the sluggishness that has been plaguing the economy. He also allowed Western companies to partner up with the local firms in various undertaking, Joint Venture Law of 1987, allows western firms to acquire a majority stake in the venture (Curtis, 1996). The purpose of this law is give foreign firms access to large quantities of labour, infrastructure, and domestic market, while the local firm gets new technology, foreign capital and access to foreign markets. This can be seen as a total shift in the foreign trade policy of USSR, for during 1950s-1980s, the nation was only engaged in trade with its satellite states or other communist nations.
However these measures could not bridge the inefficiencies that plague the economy, and exposed further weakness of the socialist model as opposed to the capitalist one.
Present and Overview era
The Russian economy is now capitalist mixed economy with strong state presence that is prevalent in sectors such as arms, oil, and other sectors of the economy. The economy is a resource based economy, for it contains massive amounts vital and valuable resources, such as gold, oil, copper and etc, which has helped the nation overcome the 1997 financial crisis, for it was able to use the funds generated from the energy sales, to jumpstart the fledgling economy to growth.
However, despite being a highly diversified economy with a strong manufacturing base inherited from its soviet era, it suffers from its excessive reliance over its energy sector to not only garner foreign trade and revenue, but also shore the national budget. This has manifested itself in the form of “dutch disease”, for the share of the other sector's economic contribution to overall GDP is small and declining. It can also be seen in the poor performance of its regional automotive and tech brands, when competing against foreign giants that secured a dominant place in the Russian Market, for these domestic firms lack innovative and marketing capability to compete. Also this leaves Russia hostage to the price of oil, for it could be threatened in periods of low prices and vice versa. Which, shall scare away foreign investment due to high amount uncertainty. Also many structural flaws are inherited from its soviet era and exacerbated by the “shock therapy” that took place during 1990's, such as the growth and presence of the oligarchy, where Russian elites hold dominant shares of each sector of economy. Large scale corruption and bureaucracy still exists within the government and the infrastructure is in dire need of an overhaul. Also foreign capital, like the soviet days, is limited due to sanctions imposed by the Western nations, over its role in Ukraine crisis.
...(download the rest of the essay above)