Academic journal article The McKinsey Quarterly

What Is to Be Done?

Academic journal article The McKinsey Quarterly

What Is to Be Done?

Article excerpt

This issue's cover shows the new Church of Christ Our Savior reflected in the slowly running waters of the Moscow River. The church--a cause championed by Moscow's mayor, Yuri Luzhkov, after the fall of communism--is a testament to the rebirth of Russia as it began the historic transformation from a centrally managed to a market economy almost a decade ago. The reforms intended to bring about this transformation included the privatization of virtually all economic assets and the decontrol of virtually all prices. As expected, the result was considerable competition in virtually all markets.

Sadly and surprisingly, however, the optimism of the early years wasn't warranted. The Church of Christ Our Savior, mired in the corruption and inefficiency of Russia's political and economic system, is unfinished. The reform program was, if anything, even less successful. Russia's economy declined dramatically through 1994 and has stagnated ever since. As the resigning Boris Yeltsin lamented, "the dreams we shared did not come true ... what seemed simple to us turned out to be tormentingly difficult."

Why should people elsewhere care about what happens in Russia? At the simplest level, the country is home to 150 million people whose well-being is important for humanitarian reasons. Moreover, the 1998 financial crisis showed that all economies around the globe are far more interconnected than many of us had imagined; in a very real way, the health of Russia's economy affects the health of the world's.

Yet there is an even more compelling reason to care about what happens in Russia: geopolitical stability. The country created the world's second most powerful military force, whose remnants still include some 20,000 working nuclear weapons. Everyone on this planet therefore has an interest in the ability of Russian society to carry on in an orderly and lawful manner. Since it won't be able to do so without a well-functioning economy that produces jobs, general prosperity, and economic optimism, we all should care about Russia's economic health, and that is why the McKinsey Global Institute undertook the study summarized in the article that begins on page 19.

Established in 1990 as a research group within the Firm, the McKinsey Global Institute uniquely combines two distinct disciplines: economics and management. Economists have scant access to the real-life problems facing business executives, who themselves lack the time, motive, and training to consider the larger issues facing the global economy. …

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