Academic journal article Demokratizatsiya

Russia as an Economic Superpower: Fantasy or Possibility?

Academic journal article Demokratizatsiya

Russia as an Economic Superpower: Fantasy or Possibility?

Article excerpt

For most observers, it was hard to comprehend how the USSR could be an economic superpower supporting a massive military buildup one day and a nation of almost no economic significance the next. One day we are told that the GNP of the USSR is equal to about half the value of the GNP of the United States, and a few minutes later we are told that the Russian GNP is no more than one-tenth that of the United States. It was not only that the Soviet economy collapsed, but how rapid and seemingly all-encompassing that upheaval was. Had the cold warriors and the CIA been deluding us with smoke and mirrors all these years?

Whether or not it was all propaganda (and most observers believe that the production was real but not of much use to the civilian population), now a decade later a considerably smaller Russia seems to be stirring again. Several analysts have argued that Russia has not only come to embrace the market but is on the way to becoming an economic miracle. The fact that some of these observers came to such conclusions well in advance of Russia's 17 August 1998 financial and economic meltdown is not very reassuring, yet they may have been on target, if a bit premature.

Certainly, the Russian economy seems to have turned some important corners. Not only has the economy stabilized but industrial production has grown steadily since early 1999. Recently its growth has slowed, but measured against the beleaguered economies of powerhouses such as the United States, Japan, and even Germany, Russia's growth has been impressive. At the same time, a healthy foreign trade surplus has brought with it an impressive jump in the country's foreign reserves. After falling to not much more than $10 billion in 1998, dollar reserves soared to over $40 billion in the middle of 2002. The same surge of new wealth spared Russia the need to seek new international loans. Instead, to the pleasant surprise of many both outside and even inside the country, Russia began voluntarily to prepay several of its debts. Flushed with such good news, the Russian stock market came to life and registered one of the world's largest gains in late 2001 and early 2002.

I

Many factors led to the collapse of the Soviet economy in the early 1990s. The end of the cold war and the subsequent marginalization of large sectors of the military-industrial complex were particularly important. Mikhail Gorbachev has acknowledged that the military-industrial complex (VPK) accounted for at least 20 percent of the Soviet Union's GNP. Other estimates are even higher. In some parts of the country, as much as 70 percent of the region's industry was devoted to the VPK sector. Consequently, when Gorbachev and U.S. president Ronald Reagan began to sign a series of arms control agreements, almost overnight there was no longer any need for most of those industries. Converting factories producing military hardware is hard enough in the United States. In Russia, where the VPK-GNP ratio is much higher, the task was much more difficult.

Take aluminum. During the cold war, the Soviets classified aluminum production statistics as a state secret. That was because almost the entire output of the aluminum industry went to the military. By 1992, with almost no one in Russia interested in producing aircraft, military or civilian, only 200,000 tons of the 4 million tons produced that year found a buyer. The rest, at least until export markets were tapped, piled up unwanted.

For decades, the financial viability of industries in the Soviet VPK was of little concern. That was true in the United States as well--the extravagant toilet seats were a perfect example. The Soviet VPK, and for that matter most of the nonmilitary sector as well, were spared having to deal with capitalist economic concerns such as market discipline, hard budget constraints, and profitability. These were fetishes of capitalism and were of no concern to central planners in a centrally planned economy. …

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