Transition Chance

Russia has huge resources to exploit and handicaps to overcome. Wherever it lands on the spectrum from successful modernisation to failed statehood, the country’s growing impact on the wider world – from financial markets to geopolitics – looks assured.

So much achieved…

The collapse of the Soviet system in 1991 was total – not only of the dictatorship of the communist party, but also of the empire and the economy. In the following years culminating in the financial crash of August 1998, Russia lost half of its recorded output. The economic recovery since then has been no less dramatic. Annual real GDP growth averaging 6.5 per cent between 2000 and 2005 has now restored the economy to the same overall size as recorded in official statistics for 1990 (the last full year before the collapse).

In most other respects, the Russian economy has been transformed beyond recognition in comparison with the days of Soviet central planning. Functioning product and capital markets have replaced the command-administrative system, and private property rights have been established. These transformations have been made essentially from scratch, and are underpinned by the essential legal and institutional framework. First and foremost, law-based stability is founded on a Constitution (adopted by popular referendum in 1993) enshrining the separation of powers.

…so far still to go

For all these achievements, fifteen years is a short period in an arduous modernisation process. Poisons left by the Soviet system still course through the veins of state and society. The most obvious and serious symptoms are corruption and weak rule of law. The country’s difficulties are compounded by new problems created out of the old system’s collapse – from the legitimacy of property rights to the profound psychological shocks (over and above very real material hardship) which appear to underlie phenomena such as the collapse of average male life expectancy below sixty years.

Russia’s big chance

During the long Soviet decades, the Party-State allocated the lion’s share of the country’s resources to a wasteful military machine – though much of the associated science and technology base has survived the transition to constitute a valuable asset for the long-term diversification of the economy. Much of the wealth redistributed in this way came from natural resource exports – especially after the giant west Siberian oilfields began to be exploited in the 1970s. In today’s Russia, natural resource exports – of both hydrocarbons and minerals – still dominate the economy and increasingly define Russia’s place in the world.

This resource wealth has now created strong domestic demand. The resulting supply side response is characterised by fast growing companies, notably in consumer and service-oriented sectors where growth is due not only to real income increases but also to the fact that many such sectors were either left underdeveloped under Soviet central planning, or did not exist at all.

Put another way, Russia has not needed to make an impossible instant leap from a militarised command economy to new comparative advantages in today’s environment of increasingly competitive globalisation. Instead, resting on the foundation of its natural resource wealth, Russia can prosper for many decades through the development of its large domestic market – with Russian consumers in turn making a material contribution to aggregate global demand.

Elite virtue and vice

In this long perspective, Russian looks set for rule by a unified elite aiming for national revival after the collapse and humiliations of the 1990s, based on a strong economy and modernised institutions and society. Much will depend on the performance of this elite – specifically the extent to which it will moderate its greed and promote the public good. The positive factor here is centuries of national cohesion and ambition.

This single question – about elite behaviour – best ties together the thematic framework and related questions addressed in the Trusted Sources Russia channel

Our themes

Stability
Investment-led growth
Quality of institutions
Natural resources
Nationalism
Nihilism